END OF GAS SUBSIDY NOT NIRVANA FOR GUINEA

UNCLAS CONAKRY 000134

SIPDIS

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TREASURY FOR OFFICE OF AFRICAN NATIONS

SIPDIS

E.O. 12598: N/A
TAGS: ECON EPET PGOV GV
SUBJECT: END OF GAS SUBSIDY NOT NIRVANA FOR GUINEA



1. (SBU) SUMMARY. The termination of the gasoline subsidy on April
1 has not led to the projected increase in revenue to the
government. END SUMMARY.


2. (SBU) ) On April 23, Econoff met with Elhadj Alpha Yaya Diallo,
the Chef de Bureau for the gasoline depot in Conakry. Diallo stated
that the termination of the gasoline subsidy on April 1 has not led
to the expected increase in revenue to the government.


3. (SBU) Mr. Diallo stated that the reasons for the reduced revenue
are varied. He said the 62% increase in the price of gas has led to
a 30% reduction in consumption. Siaka Bakayoko is the World Bank
resident representative in Conakry. Mr. Bakayoko states that prior
to the termination of the subsidy, Siguiri, a town near Mali with a
population of about 50,000 residents, had about the same gasoline
usage as Conakry, a city of about 2 Million. He said this might
reflect the effect of smuggling the subsidized gasoline. Mr. Diallo
said that the new price had resulted in a reduction in smuggling.


4. (SBU) The Chef de Bureau also blamed the petroleum companies for
taking advantage of the price hike to increase their profits. He
revealed that the petroleum companies almost doubled their per liter
profit 200 Gnf to 350 Gnf (.04 USD to .07 USD). The gas transport
charge almost doubled, 200 Gnf to 380 Gnf (.04 USD to .08) per
liter, and the profit margin at the stations went from 100 Gnf to
200 Gnf (.02 USD to .04 USD) per liter. (NOTE: Gasoline company
profit margins currently account for Thirteen percent of the cost of
a liter of gas, up from Eleven percent pre-termination. END NOTE.)


5. (SBU) Mr. Diallo claimed that the failure to reach revenue
estimates has impacted the mitigation measures demanded by the
unions, and agreed to by the government. (NOTE: These measures
included wage and transportation allowance increases. END NOTE.)
The Chef shared with Econoff GOG documents that show the monthly
additional total revenue from the end of the subsidy is now
projected to be about Nineteen Billion Gnf (4,200,000 USD). This is
significantly less than the Forty Three Billion Gnf (9.5 million
USD) that the unions projected prior to the termination. The Chef
de Bureau claims that the unions used the higher figure to wring
mitigation measures out of the government, but now the government
does not have the money to pay for them.

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COMMENT
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6. COMMENT: The end of the gasoline subsidy promised a new revenue
stream for the government. Instead, thanks to the elastic response
of the consumers, and the increased profit margins for the petroleum
companies, the stream is more like a small creek. This adds more
pressure to the government because it took on additional spending
commitments, for example, salary augmentation for civil servants,
and increased transportation allowances, based upon the enhanced
revenue stream. END COMMENT.

CARTER